Financial Account week 3
Financial Account week 3 FIN343
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This 5 page Class Notes was uploaded by Leosinh on Tuesday June 7, 2016. The Class Notes belongs to FIN343 at Marshall University taught by Brian J Bushee in Summer 2016. Since its upload, it has received 8 views.
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Date Created: 06/07/16
Financial Accounting Week 3 : Relic Spotter Inc. Case ( Part 2) Explaining Important Transaction 13 Relic Spotter opened for business on July 1,2012 , just in time for the big Independence Day weekend. On July 31, Park paid the supplier the $2000 it was owned. Journal Entry (13) 7/31/12 : Dr. Accounts Payable (-L) 2000 Cr.Cash (-A) 2000 Transaction 14 : (14) On August 31, Park paid the $2500 dividend that had been declared in June. (14) 8/31/12 : Dr.Dividends Payable (-L) 2500 Cr.Cash (-A) 2500 Transaction 15: (15) In a search for new revenue opportunities , Park initiated an unlimited rental arrangement with the Penn Antiquities Club on December 1,2012. Under this arrangement, the club paid Relic Spotter $1200 cash upfront for unlimited rentals over the next year. 12/1/12 : Dr. Cash (+A) 1200 Cr. Unearned Rental Revenue (+L) 1200 Transaction 16 : (16) For the six months ended December 31,2012, rental revenues on the metal detectors totaled $124300. Most of the rentals were paid in cash immediately. However, as an initiative to reward repeat customers, Park allowed a select number of frequent renters to charge their rentals and be billed later. As of December 31,2012, $4200 was outstanding under this plan. 12/31/12 : Dr.Cash (+A) 120100 Dr.Accounts Receivable (+A) 4200 Cr.Rental Revenue (+R,+SE) 124300 Transaction 17 : (17) During the period between July 1 and December 31, Park purchased $40000 of sundries inventory, of which $38000 had been paid in cash and $2000 was still owned at December 31. 12/31/12 : Dr.Inventory (+A) 40000 Cr.Cash (-A) 38000 Cr.Accounts Payable (+L) 2000 Transaction 18 : (18) Relic Spotter recorded sales of sundries totaling $35000 for the six months ended December 31, all received in cash. 12/31/12 : Dr.Cash (+A) 35000 Cr.Sales (+R, +SE) 35000 Transaction 19 : (19) The original cost of these sundries was $30000. 12/31/12 Dr.Cost of goods sold (+E, -SE) 30000 Cr.Inventory (-A) 30000 Transaction 20 : (20) Finally, Relic Spotter’s two employees were paid wages of $32000 total during this six-month period and Park drew a salary of $50000. 12/31/12 Dr.Salaries and Wages Expense (+E,+SE) 82000 Cr.Cash (-A) 82000 Transaction 21 : (21) When Park called her accountant on December 31,2012, she was pleased to tell him that the company had $78800 in cash. She wanted to go out to celebrate , but the accountant reminded her that she needed to stay in to do adjusting entries. For example, even though it wasn’t paid in cash, accrued interest on the mortgage was $4900. 12/31/12 Dr. Interest Expense (+E, -SE) 4900 Cr.Interest Payable (+L) 4900 (22) the accountant said that depreciation needed to be recorded on the building (Park was confused by this because she received an unsolicited letter from a mortgage broker informing her that the building had increased in value to $120000) Recall that, in transaction (5), Park renovated the building , bringing its original cost to $85000. She also determined that the useful life of the building was 25 years, with an expected salvage value of $10000. (22) 12/31/12 Dr. Bldg. Depreciation Expense (+E,-SE) 1500 Cr. Accumulated Depreciation (+XA,-A) 1500 (85000 – 10000 ) / 25 = 3000/year 3000 * ½ year = 1500 (23) The accountant also noted that Park needed to record depreciation on the metal detectors. Recall that, in transaction (6), Park purchased $120000 of metal detectors. She determined that the units would only last for two years, at which time they would have no remaining value. 12/31/12 Dr.Met.Det Depreciation Expense (+E,-SE) 30000 Cr.Accumulated Depreciation (+XA,-A) 30000 (120000-0) / 2 = 60000/ year 60000* ½ year = 30000 (24) The accountant continued… What about adjusting the software amortization account? Recall that, in transaction (8), Park paid the $2100 three-year software license fee on June 30. 12/31/12 Dr.Software Amortization (+E,-SE) 350 Cr.Software (-A) 350 2100 / 3 = 700/year 700 * ½ year = 350 (25) …What about the prepaid advertising account ? Recall that, in transaction (9), Park said $8000 upfront on June 30, 2012 for advertising through June 30,2013. 12/31/12 Dr. Advertising Expense (+E, -SE) 4000 Cr.Prepaid Advertising (-A) 4000 8000*1/2 year = 4000 (26).. What about the notes receivable account ? Recall that, in transaction (10), Park borrowed $5000 from Relic Spotter at 10% interest on June 30,2012 with the principal and interest due in a lump sum on June 30,2013. 12/31/12 Dr.Interest Receivable (+A) 250 Cr. Interest Revenue (+R,+SE) 250 5000 * 10% = 500 500 * ½ year = 250 (27).. What about the unearned revenue account ? Recall that, in transaction (15), the Penn Antiquities Club paid Relic Spotter $1200 cash upfront on December 1,2012 for unlimited rentals over the next year. 12/31/12 Dr.Unearned Rental Revenue (-L) 100 Cr.Rental Revenue (+R,+SE) 100 1200 * 1/12 year = 100 (28) Finally , the accountant noted that Relic Spotter incurred an estimated income tax expense of $630 for 2012 (Park was also confused by this because she did not do her taxes until April) 12/31/12 Dr.income tax expense (+E,-SE) 630 Cr. Income Taxes Payable (+L) 630
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